The Cadillac Tax Is Unpopular — But Employers Still Must Prepare

By Chris Covill

The Cadillac Tax is one of the most unpopular provisions in the Affordable Care Act. Republicans want to repeal it. Hillary Clinton has spoken out against it. Corporate America hates it. Unions oppose it. And a recent poll found that nearly 70 percent of Americans surveyed believe the tax should be repealed or delayed.

With that much opposition, the Cadillac Tax will surely be DOA before it is supposed to take effect in 2018 — and employers should be able to plan their benefits packages without factoring in the tax, right?

Not so fast. Laws are hard to change, government is counting on revenue from the tax to pay for a big chunk of the Affordable Care Act, and we don’t have a clue how next year’s presidential and congressional elections will play out. It would be irresponsible for businesses to fail to prepare and make decisions on how they will manage potential major new costs.

Included in the Affordable Care Act, the Cadillac Tax is a 40 percent tax on high cost employer-sponsored health plans. It is designed to reduce healthcare spending by employers and consumers by imposing a tax on health plans that cost more than $10,200 for individuals and $27,500 for families. For example, if an employer offers a plan that costs $15,000 for an individual, it would have to 40 percent of $4,800 ($1,920) for each individual it covers under the plan.

Many employers will face having to pay the Cadillac Tax at some point within the first five years of its enactment. As noted in a Kaiser Family Foundation analysis in August: “Our estimates suggest that a meaningful percentage of employers would need to make changes in their health benefits to avoid the HCPT in 2018, and that this percentage grows significantly over time unless employers are able to keep heath plan cost increases at low levels.”

The Kaiser analysis found that 56 percent of large employers would be subject to the tax by 2023, with the number climbing to 68 percent five years later.

The percentage is expected to grow over time because health costs are expected to continue to grow over time — and employers need to decide now whether they want to incur the tax, reduce the burden under the tax or avoid it altogether.

If they wish to avoid the tax, employers will need to make plan design changes that will lower the value of the medical benefit to the employee, which likely would mean some combination of reduced choices and higher direct costs for health consumers — accelerating a trend that employers and employees know all too well already.

Planning now is vital, especially if employers want to ease the impact their plan participants will undoubtedly feel. Instead of just dropping higher costs on participants in 2018, it may make the most sense to phase in plan design changes over a number of years so that participants don’t feel a drastic impact and they have a better idea of what will be expected of them in the coming years. Like most plan design changes the greatest impact is felt by the members themselves who are least equipped to understand what these changes mean and how to best utilize (and maximize) their benefits.

At Accolade, we work with employers to help empower their plan participants to understand, navigate and use their benefits most effectively through what undoubtedly will be a challenging transition. Assigning a health assistant to work one-on-one with each plan members and their families to help them make the best decisions is core to our mission.

Health assistants answer questions about benefits coverage, translate complicated claims forms, review bill accuracy, find the right providers, explain treatment options, prepare questions for doctor visits, coordinate care and more. Our goal is to do what’s right for the client so that they get the right coverage and care options — even before they get sick or injured.

So what have we learned from our experience? Plan changes might be inevitable but high levels of employee stress and dissatisfaction around the change don’t have to be. Employers we’re working with who have introduced significant plan design changes this open enrollment season are seeing employee satisfaction levels of 98 percent. The difference maker is they are turning what could be debilitating plan changes into an empowering event that employees value rather than resent.

So, as the Cadillac Tax kicks in, that kind of good will could vault impacted firms ahead of their competitors by empowering its workforce with a valuable and a highly appreciated benefit while reducing overall medical expenses.

Chris Covill is the Executive Vice President of Strategic Partnerships at Accolade, Inc.